Adjudication for the Process Industry

(Should s105 of the Housing Grants, Construction & Regeneration Act (1996) be revised?)

Peter Phillips & Martin Green

Introduction:

In the late nineties, the UK building and construction industry was worth about £65 billion with about 163,000 firms employing almost 2 million people, nearly a quarter of whom were self-employed (National Audit Office, 2001). The industry at that time had been through recession in the seventies, public sector cuts in the eighties and then a further recession in the late eighties, all of this resulting in de-skilling of the workforce and in major contractors going out of business and taking thousands of reliant subcontractors with them (Gardiner, 2014). There was also concern at the high cost of construction compared with costs in the US and Europe, at the high proportion of disputes and at the length of time and cost to resolve them (Coulson, 2011).

Latham recognized the importance of cash-flow especially to the smaller subcontractors (Latham, 1994, p.91) and that disputes are sometimes inevitable with construction work and that the industry needed a means for resolving them efficiently (1994, p.87). These two important subjects, payment and disputes, are addressed by Part II of the Act which, following many of Latham’s recommendations, provides minimum contract requirements for payment and the right to parties to a construction contract to refer any dispute at any time to adjudication.

The Act applies to construction contracts and these are defined in s104 of the Act as “the carrying out of construction operations”. Construction operations are defined in s105(1) where they are given a very broad description, however, s105(1) is followed by s105(2) which reads as follows:

“The following operations are not construction operations…

(c) assembly, installation or demolition of plant or machinery, or erection or demolition of steelwork for the purposes of supporting or providing access to plant or machinery, on a site where the primary activity is –

(i) nuclear processing, power generation, or water or effluent treatment, or

(ii) the production, transmission, processing or bulk storage (other than warehousing) of chemicals, pharmaceuticals, oil, gas, steel or food and drink;”

HHJ Thornton in Palmers v ABB1 determined that s105(1) is subject to s105(2). Thus, for a construction activity to be considered as a statutorily defined “construction operation”, it must not only be an activity that is described in subsection 1 but it must also not be one that is excluded by subsection 2.

It has been the construction of s105(2) that has caused difficulties for contractors, subcontractors, adjudicators and the courts. The courts have adopted two quite different approaches. The so-called “narrow approach” is the narrow interpretation of s105(2) first used by HHJ Thornton in Palmers v ABB2 where he did not consider that the erection of scaffolding was part of the erection of the plant and therefore scaffolding erection was not excluded by sub-section 2. In ABB v Norwest Holst3 , HHJ Lloyd took a much broader approach when he said that:

“the object of this sub-section is therefore that all the construction operations necessary to achieve the aims or purposes of the owner or principal contractor…would be exempt”.

He followed this by saying that:

“…it would be invidious if [the exemptions to the provisions of the Act] applied to some but not all construction contracts on a site or a project”.

Judge Ramsey in the leading case North Midland v Lentjes4 considered the two approaches and decided that the narrow approach was the correct one. His general observation was that the “application of s105(2)(c) is not straightforward”. Even if the courts consistently adopt the narrow approach there remain difficulties with the application of the Act to construction work performed on process industry sites and these are:

i. It is possible for a contract to be only partly covered by the Act or for it to be unclear if part or the whole is covered. In such a case an adjudicator may find that if his decision is not severable, it will not be enforced as in Cleveland v Whessoe5 .

ii. A contractor may find himself in a dispute with a subcontractor who is able to refer that dispute and get a decision within 28 days but the contractor cannot do likewise on his main contract with the owner because it is excluded from the Act.

So why was the process industry6 excluded from the Act? In opening the second reading of the bill that would become the Act, the Minister for Construction, Planning and Energy Efficiency said:

“…the process engineering industry made it very clear to me—the record speaks for itself—that it has not had the same dispute and payment problems as the construction industry as a whole. That is why we decided that that industry should be excluded…” (HC Deb. (07 May 1996) 277, col.51).

During the debates on the bill that followed many questioned the minister’s position. Lord Howie of Troon proposed amendment No. 139 (HL Deb. (28 March 1996) 570, col.1862) which gave a clear definition of construction operations that included the process industry but excluded mining and oil and gas drilling. This definition was similar to that proposed by the Latham Review Working Group-107 and similar to the definition used by other countries later when they enacted their own statutory adjudication. It should be noted that there were some who were of the opinion that even if there were no serious problems, that that was not reason enough to exclude the industry from the Act (HL Deb. (28 March 1996) 570, col.1865). The Act, they said, would have prevented serious problems from occurring and it would have provided uniform minimum contract requirements and rights across the industry in all sectors where construction work was performed. Nevertheless, Parliament passed the Act and it excludes the process industry.

Coulson (2011, p.8) makes the point that it is difficult to understand why, if adjudication was the effective solution that its advocates claimed it to be, it was excluded from so many operations that would normally be considered to be construction operations. It is clear that Parliament anticipated that there might be problems later with construction work in industries not covered by the Act. The Minister for Construction, Planning and Energy Efficiency said:

“If problems arise outside the area for which we have legislated, it seems reasonable at this stage not to preclude any changes in definition. We shall watch developments in all parts of the industry. We have adopted a flexible approach, which will be welcomed in the construction industry” (HC Deb. (07 May 1996) 277, col.52).
Accordingly s106(A) of the Act provides the Secretary of State with the power to disapply any or all of the provisions of s105. This means that he can order s105 to be revised so that the Act includes the industries that are currently excluded.

Objective:

The question that this paper will answer is this: should s105 of the Act be revised to include the process industry? In order to answer this question it is necessary to understand the current state of construction work in the process industry. If there are no serious problems with payment and disputes in the industry today then it can be argued that the Act should remain unchanged. If however there are serious problems that would be greatly reduced if the work were included under the statutory definition of construction operations, then there is a strong argument that the Act should be revised. This paper will therefore objectively test the premise that there are no serious payment problems and no serious construction disputes in the process industry today.

The Research:

In order to be able to reject or accept this premise with a certain level of confidence it is necessary to research construction work in the process industry today and especially in the two specific areas that Part II of the Act addresses. These areas are payment and disputes.

A questionnaire was prepared and it was posted online on the 18th December 2014 in several construction and construction contract discussion groups on the professional networking site LinkedIn. An overview of the subject was provided at the head of the questionnaire to give respondents some background information on the Act and the exclusion of the process industry. The respondents were advised that all of the questions related to construction work in the process, petrochemical and power generation industries. The questions were multiple-choice and most questions asked the respondent to give his opinion on a subject or his degree of agreement or disagreement with a certain statement. The survey received data from 59 respondents.

The first question in the questionnaire asked respondents to identify themselves as a member of one of three groups: owners, contractors or subcontractors. The purpose of this question was to enable the data to be filtered by respondent group and thus to be able to compare the general view points of the three groups. These three groups were chosen because they represent the typical hierarchy on a construction site. The distribution of responses by respondent group is shown in Figure 1 below.

Figure 1 Response rates for the three respondent groups

Figure 1: Response rates for the three respondent groups.

The majority of respondents represented contractors and a sizeable proportion represented owners. The number of subcontractors who responded was about 12 percent of the total and this was disappointing. Fellows and Liu address the problem of a small response rate (2008, pp.159-160) and they note that the data may incorrectly be interpreted as representing the whole population. Thus the data received from subcontractors may not give an accurate representation of the views in general of subcontractors working in construction in the process industry and some of the results may appear skewed. This will be considered as the data is discussed below for each of the questions that were asked.

All subcontractor respondents and over 80 percent of owners and contractors were project or construction managers/supervisors or contract administrators, see Figure 2. It is these categories of respondent that would be most closely associated with the construction site and aware of the daily life on the site and the difficulties during construction. These two categories are consequently the best suited to responding to some of the questions. The respondents whose background was legal represented about 11 percent for the owner and about 16 percent for the contractor.

Figure 2 Respondents by discipline

Figure 2: Respondents by discipline.

Payments

A survey of the UK construction industry conducted in 2013 found that most disputes were in connection with payment in some form or other (Malleson, 2013). During 2012, withholding monies accounted for 22 percent of disputes, failure to pay on time 17 percent and valuation of progress a further 16 percent. In the survey conducted for this paper, 43 percent of subcontractors and 50 percent of contractors said that most disputes were related to payment or valuation of work. Considering both respondent groups together, see Figure 3, over three-quarters of respondents believe that payment accounts for over 30 percent of disputes.

Figure 3 Disputes relating to payment

Figure 3: Disputes related to payment (contractors and subcontractors).

Payment and valuation of work disputes can be considered to be of major significance to contractors and subcontractors in the process industry. The view of owners is different with over 60 percent saying that less than 30 percent of disputes concern payment.

There are a number of provisions in the Act that provide minimum requirements for contract payment terms for statutorily defined construction operations. These provisions are denied to contractors and subcontractors performing construction work in the process industry. The questionnaire included five questions on the subject of payment to subcontractors; each of these questions relates to a different payment provision of the Act. As this part of the research targeted the payment relationship between contractors and subcontractors the data received from owner respondents have been filtered out and excluded from this analysis.

i. Section 109 of the Act provides the right of a party to stage payments. The interval between payments may be agreed between the parties but in practice this would normally mean that a contractor would pay a subcontractor each month based on the progress that he has made or on the work that he has completed. For construction contracts under the Act, all subcontractors performing work that lasts in excess of 45 days are entitled to payment on a stage basis.

Question 4 of the questionnaire asks what percentage of subcontractors is paid on a monthly basis. The data collected from subcontractor and contractor respondents, see Figure 4 below, indicates that a substantial proportion of these two groups believe that most of the time subcontractors are not paid on a monthly basis. Over half of subcontractors believe that they are paid on a monthly basis less than 50% of the time. Contractors, who are the party paying the subcontractor, don’t feel that the situation is so poor but their responses do indicate that the situation is not as it would be were their contracts subject to the minimum requirements of the Act. The true picture may lie between the views of the two groups but nevertheless it is clear that there is considerable work performed in the process industry without a regular payment schedule. The irregular distribution of the subcontractor’s responses may be due to the low response rate from this group.

Figure 4 Percentage of subcontractors that are paid on a monthly basis

Figure 4: Percentage of subcontractors that are paid on a monthly basis.

ii. Section 110 of the Act begins by stating that every contract shall provide a mechanism that determines what payments are due and when. The final date for payment is also to be defined under a contract. If these requirements are not met then the default position of the Scheme8 applies which is payment 30 days following completion of the work or following the making of the claim for payment by the subcontractor. Subcontractors performing work covered by the Act should therefore know when they should receive payment and that they should be paid on-time.

Question 5 of the questionnaire asks what percentage of subcontractor’s work is paid for on-time. Data from subcontractor and contractor respondents, see Figure 5, indicates that payment is not being made on time for construction work in the process industry. None of the subcontractor respondents said that they are being paid on time in more than 95 percent of cases and this view was generally supported by contractors. Forty-three percent of subcontractors feel that they are being paid late most of the time.

Figure 5 Percentage of contractors paid on time

Figure 5: Percentage of subcontractors paid on time.

iii. Under s111(3) of the Act a contractor is required to pay the whole amount of the payment due unless he issues a “pay-less” notification not later than seven days prior to the final date for payment. The notification must state the sum the contractor considers is due and the basis on which it was calculated.

In the process industry these minimum requirements do not exist and the subcontractors say that they seldom receive advance notice of payment deductions, see Figure 6. Twenty percent of contractors agree with the opinion expressed by the subcontractors. Notifications of deductions, or back-charges, ought to be given in every case; contractors confirm that in 75% of cases this not always done. This means that in many cases a subcontractor is unsure that he will be paid the full amount for the work performed until he receives the payment. For smaller subcontractors cash-flow is of vital importance and uncertainty of payment may have serious consequences.

Figure 6 Subcontractors are notified in advance of back-charges

Figure 6: Subcontractors are notified in advance of back-charges.

iv. Section 113 of the Act prohibits conditional or “pay-when-paid” clauses. This section was later reinforced by the addition of section 110 (1A) when the Act was modified by the LDEDC Act 2009 (c20)9 and it prohibits payment being conditional on the performance of obligations under another contract or a decision by any person as to whether those obligations under another contract have been performed. In other words, a contractor is required to pay for work that has been performed by a subcontractor regardless of whether or not the contractor has been paid for it. Mr Anthony Coombs during the second reading of the bill in the House of Commons described “pay-when-paid" contracts as “unrealistic and anachronistic” and said that they should be abolished (HC Deb. (7 May 1996) 277, col.93). Peter Thurnham during the same reading described the use of "pay when paid" clauses as an “ignominious practice” and warned that:

“Once it starts in an industry, it spreads right through because each person feels that he must pass on the practice to the next person in the chain, so that the whole industry becomes riddled with it.” (HC Deb. (7 May 1996) 277, col.78).

The views expressed by subcontractors and contractors in the survey are markedly similar and show that over 40% are of the opinion that payment to a subcontractor is often withheld when a contractor has not been paid, see Figure 7. Over 80 percent of respondents said that withholding of payment occurred “often” to “almost always” in these circumstances. Only nine percent of contractors said that payment was rarely withheld. It is fair to say that withholding payment on the basis of pay-when-paid is commonplace in the process industry.

A respondent to the survey noted that if the contractor had not been paid because the work performed by his subcontractor was defective or incomplete then the contractor would be entitled to withhold payment. Whether or not a contractor with a construction contract under the Act would be within his rights to withhold the full amount depends upon the facts but the contractor would be required to provide the proper notice to pay less stating the value of the work done and how he had determined that value.

Figure 7 A contractor who has not been paid withholds payment for the same work from a subcontractor

Figure 7: A contractor who has not been paid withholds payment for the same work from a subcontractor.

The practice of conditional payment was condemned by Latham (1994, p.85) when he wrote that “any attempt...to include a clause…with the effect of introducing “pay-when-paid” conditions should be explicitly declared unfair and invalid”. In the process industry there are no restrictions and as foreseen by Bingham (2000) this practice is as a result in use today.

v. Section 112 of the Act provides the subcontractor with the right to suspend the performance of a part or whole of his work in the event that he has not been paid by the final date for payment and provided that in such an event he has properly given notice of his intent to suspend his work. The provisions of this section also entitle him to reimbursement of reasonable costs incurred by him in stopping and re-starting his work. This section is important because it provides a subcontractor with a tool with which to influence the contractor to pay on time and it also prevents a situation where a subcontractor is obliged to continue working without the cash-flow necessary to keep his operation viable. If a subcontractor has not been paid on time and he has not been issued with a notice to withhold payment, he may under the provisions of s112 stop work on part or the whole of his scope of work. In the process industry he has no such right.

Not surprisingly, all subcontractors and most contractors agree that they should have this right, see Figure 8. What is surprising is that some 12 percent of contractors disagree with this view. This may be because they have been used to working under a regime where stopping the work is considered to be a breach of contract or that in their experience owners do not normally withhold payment unreasonably and there would be no need. It may also be that they are envisaging the relationship downstream with the sub-contractors and wish to retain the option of pay when paid. It is interesting to note that most owners believe that contractors should have the right to stop work if they are not being paid.

One respondent raised the point that the reason for withholding payment must be stated and it must be reasonable but he agreed that it there was a genuine failure to pay then the contractor should have the right to stop work.

Figure 8 A subcontractor or contractor who has not been paid should have the right to suspend the performance of his work

Figure 8: A subcontractor or contractor who has not been paid should have the right to suspend the performance of his work.

The responses to these questions reveal that there are payment problems in the process industry and that unfair payment terms or unfair payment behaviour is commonplace. Contractors, it seems, have no compunction in withholding payment from subcontractors if they have not been paid themselves and too often they pay their subcontractors late and not the full amount without any advance notification. It is this type of behaviour that concerned Latham and that the Act was designed to prevent.

Disputes and Adjudication:

The second area researched is that to do with construction disputes in the process industry. The questions below ask about the nature of disputes, how they affect construction work and how they are typically resolved in the process industry. With construction work that is covered by the Act it is clear. Although the parties are free to resolve their disputes in any manner that they agree, each party to a construction contract has the right to refer to adjudication any dispute at any time. Statutory adjudication is fast, inexpensive and results in a temporarily binding decision normally within 28 days of the date of referral. Adjudication has proved to be a flexible and successful process for resolving disputes and is equally adaptable to small and very large and complex disputes (Adjudication Vindicated, 2005).

The process industry successfully convinced Parliament in 1996 that it had no serious problems with disputes and that the industry had no need of statutory adjudication. Supporters of the process industry’s position went as far to say that including the process industry in the Act would be detrimental and lead to severe problems (HL Deb. (28 March 1996) 577, col.1864). It is of little importance that statements made at that time may not be factually correct. This paper concerns itself with whether there are problems today. So are there serious problems with construction disputes in the process industry?

Data collected from the survey indicates that there is a consensus among the respondent groups that disputes often seriously delay construction work, see Figure 9. Over 30 percent of owners believe that between 30 and 50 percent of construction work is seriously affected by disputes and over 60 percent find that between 10 and 50 percent of work is affected. Only a quarter of owners agree that less than 10 percent of work is affected. The views of the owner respondents generally reflect those of contractors and subcontractors. This is not a picture of an industry free from serious construction disputes.

Figure 9 Percentage of construction jobs where the schedule has been seriously affected by disputes

Figure 9: Percentage of construction jobs where the schedule has been seriously affected by disputes.

The respondent groups have similar views on the effect of disputes on the working environment and the progress of the project see Figures 10 and 11. Improving the working environment and cooperation between the parties was a major concern of Latham (1994, p.37).

figure 10 Unresolved disputes negatively affect working relationships

Figure 10: Unresolved disputes negatively affect working relationships.

All the respondent groups agree that unresolved disputes have a negative impact on working relationships and affect progress on site.

Figure 11 Unresolved disputes affect work progress on site

Figure 11: Unresolved disputes affect work progress on site.

It is clear then that a significant proportion of construction work in the process industry suffers from disputes and that these disputes often lead to schedule delays and to a souring of the working environment between the parties. It is fair to suggest then that construction disputes that arise should be resolved quickly so as to minimise schedule delays. This might be especially important to owners where their interest is often in achieving an operating plant on time in order that they may begin production. So how are construction disputes resolved in the process industry?

One commentator noted that construction contracts usually provide for disputes to be dealt with by agreed dispute resolution procedures involving mediation, adjudication and arbitration (The College of Estate Management, 2014). He added that in addition to these, many contracts for large and complex projects now have tiered dispute resolution procedures with obligations to negotiate in good faith, dispute resolution boards, steering committees and partnering meetings under the nomenclature of 'Partnering Obligations'.
The questionnaire considered five methods by which major disputes could be settled and the data collected from the three respondent groups show that the distribution among the respondent groups is very similar, see Figure 12.

Figure 12 Resolution of major disputes

Figure 12: Resolution of major disputes.

The majority of major disputes are settled at company management level, see Figure 13. The effectiveness of negotiation depends on the relative bargaining power of the parties and a subcontractor who is in a far worse position financially to the contractor may have less room for manoeuvre and may be forced to accept a settlement that is not equitable (Cousins, 2009). Similarly for a contractor who may be forced to settle with an owner. It may also take time for a dispute to be elevated to a management level where the two parties can negotiate and reach agreement. The payer may not be under any pressure to settle quickly and he may wish instead to let a payee’s claims accumulate until some point later in the project where he may be in a position to bargain them away.

Figure 13 Distribution of dispute resolution methods

Figure 13: Distribution of dispute resolution methods.

Data shows that about seven percent of major disputes are settled at site level and it is likely that minor disputes are settled there too. The effectiveness of negotiation at site level would also depend on the relative bargaining power of the parties.

Mediation and non-statutory adjudication are used in only 12 percent of cases. The form of non-statutory adjudication may be very different from that of statutory adjudication that is enjoyed by the construction industry elsewhere. The right to refer disputes may be limited to certain types of dispute and the form of the adjudication process may depend upon the contract or on what has been agreed by the parties on an ad-hoc basis. The parties may not necessarily have the right to refer any dispute at any time, it may take considerably longer than the seven day limit provided by the Act for an adjudicator to be appointed, the adjudicator may not necessarily be neutral, and the adjudication process may not be time-limited or result in a binding decision. The decision resulting from a non-statutory adjudication may also be different from a decision resulting from statutory adjudication as was demonstrated in Parsons Plastics v Purac (2002)10 where it was decided that the failure to serve a notification was not fatal to the right to set-off. Mediation has been criticised as time-consuming; the actual mediation process itself on average takes one to two days but it is the time it takes for the parties to reach the point where mediation might work that disappoints many (Gould, 2004).

Nine percent of all major disputes lead to arbitration or litigation both of which are costly and lengthy.

It should be remembered that without the right to stop work for non-payment or the right to refer a dispute to adjudication, the payee may have little option but to continue working even if the payer refuses to recognise the payee’s claim. This was recognised by one member of the House of Commons during the second reading of the bill when he said:

“Sub-contractors fall into all sorts of financial traps, and they often have to stay on the job and see the contract out even though they are not being paid.” (HC Deb. (7 May 1996) 277, col.89)

Latham recognised that disputes may arise despite everyone’s best efforts to avoid them (1994, p.87) and his recommendation that disputes should be resolved quickly and that the decision should be implemented immediately is one of his key proposals (1994, pp.88, 91). Statutory adjudication has been very successfully used in the UK building and construction industry and it has been well supported by the courts and by the ANBs11. An article in 2000 reported that the great value of adjudication is that the parties quickly get a decision which enables them to get on with the business and put the dispute behind them (NADR, 2000).

The last question in the questionnaire asked respondents to express their degree of agreement or disagreement with the notion that statutory adjudication would benefit construction work in the process industry. The data received is shown graphically in Figure 14 below:

Figure 14 Statutory adjudication would benefit constuction in the process industry

Figure 14: Construction work would benefit from owners, contractors and subcontractors having the right to refer disputes to an inexpensive and speedy dispute resolution process that results in a (temporarily) binding decision provided by an independent 3rd party.

The results from all three respondent groups were overwhelmingly positive. Over 60 percent of owners are in favour of the idea, over 70 percent of contractors, and all of subcontractors. Only 7 percent of respondents disagreed and 11 percent neither agreed nor disagreed. This is an important result and indicates that the process industry, which lobbied hard in 1996 to be excluded from the Act, today supports the right to statutory adjudication.
However, one respondent to the questionnaire made the following point:

“Major projects, such as power plants, are generally built under EPC performance contracts that have tightly agreed terms and do not require additional legislation that is designed to enforce the rights needed by individual small construction companies. They have milestones, agreed payment plans and substantial rights protection under international law jurisdiction (usually, London, Paris, or Singapore)”.

While it may be true that on these kinds of major projects there will be an EPC performance contract between an owner and a main contractor, this will not be the case between the main contractor and his subcontractors or further down the chain, between subcontractors and their sub-subcontractors. The respondent’s statement also acknowledges that arbitration or litigation, which is likely to be costly and time-consuming, may in the end be necessary in order to enforce a contractor’s rights.

Many other countries have observed the changes to the UK construction industry that have been brought about principally by the Act and now have their own versions of statutory adjudication. The State of Queensland, Australia introduced statutory adjudication with the Building and Construction Industry Payments Act 2004. The definition of “construction work” is similar to that proposed by Lord Howie of Troon with only mining and drilling for oil and gas excluded. New South Wales12, Victoria13 and the Northern Territories14 followed with very similar legislation. New Zealand has also passed legislation to provide the right to adjudication and it similarly excludes drilling for oil and gas and mining in its definition of construction work (New Zealand Government 2002, s. 6, ss.2). Singapore15 and Malaysia16 have no such exclusions. Only in Western Australia, where the mining industry is of great importance to the state’s economy and the industry wields substantial influence, have the exclusions been extended to include process plant related to the mining industry (Construction Contracts Act 2004 (Cwlth), s.4, ss. 3).

Conclusion

The aim of this paper is to determine if s105 of the Act should be revised to include the process industry. In order to be able to answer this question it was necessary to research the state of construction in the process industry and objectively to test the premise that there are no serious payment or dispute problems in the process industry. Fifty-nine respondents completed the questionnaire. The number of subcontractor respondents was low and this might normally give rise to a lack of confidence in the results but the views of the subcontractor respondents are closely supported by those of the much larger group of contractor respondents and this is significant because there is a close relationship between contractors and subcontractors on the site. Indeed, there is a close correlation between the responses received from all three respondent groups which provides a sufficient level of confidence in the results.

From the research it is possible to conclude that construction work in the process industry suffers from the same problems today with payment and with disputes that the UK building and construction industry suffered from in the nineties before the Act came into force. There are no minimum requirements for contract payment terms, and subcontractors are not always paid regularly or on a stage basis. Payment received is often late and sometimes less than claimed with no advance notification of deductions made. Subcontractors who have not been paid do not have the statutory right to stop work or the entitlement to costs associated with stopping and restarting work.
Disputes are not uncommon in the process industry. Owners, contractors and subcontractors all agree that disputes disrupt and cause un-scheduled delay, and hurt the relationships between the parties on the site. Most disputes are resolved through negotiation at company management level where the result for the payee may be unsatisfactory because of the unequal bargaining position of the parties. Subcontractors do not have the leverage that statutory adjudication or the right to stop work brings to subcontractors working in other sectors of the construction industry.

The way that s105 has been written is also confusing and has caused problems and unfairness. A contractor’s work may be excluded from the Act but that of his subcontractor may be included leading to the situation where a dispute referred by a subcontractor cannot be referred by the contractor under his main contract with the owner. A contractor may also find himself in the position where part of his scope is covered by the Act and part is not.

Finally, it can be concluded that owners, contractors and subcontractors are in favour of change and support the right to stop work for non-payment and the statutory right to refer any dispute at any time. There is sufficient evidence to suggest that the process industry today wants to be included in the Act.
Given the conclusions above, this paper recommends that the process industry should be included within the scope of the Act by deleting s105(2) (c).

Footnotes
1 Palmers Limited v ABB Power Construction Limited [1999] BLR 426 TCC.
2 Ibid.
3 ABB Power Construction Ltd v. Norwest Holst Engineering Ltd [2000] EWHC Technology 68 TCC.
4 North Midland Construction Plc v A E & E Lentjes UK Ltd [2009] EWHC 1371 TCC.
5 Cleveland Bridge (UK) Ltd v Whessoe-Volker Stevin Joint Venture [2010] EWHC 1076 TCC.
6 The term “process industries” has been used by Parliament, the courts and by commentators to include nuclear processing, power generation, water or effluent treatment, chemicals, pharmaceuticals, oil, gas, steel and food and drink and the same term is used similarly in this paper.
7 One of a number of working groups set up under the auspices of the Construction Industry Board to investigate and make recommendations to improve the construction industry's productivity and competitiveness.
8 Scheme for Construction Contracts (England and Wales) Regulations 1998.
9 Local Democracy, Economic Development and Construction Act 2009 (c20).
10 Parsons Plastics (Research and Development) Ltd v Purac Ltd [2002] EWCA Civ 459.
11 Adjudicator Nominating Bodies of which seventeen responded to a survey in 2002. The survey concluded that there is ample capacity of adjudicators to meet the demand (CIC, 2002).
12 Building and Construction Industry Security of Payment Act 1999, (Commonwealth of Australia) s.5.
13 Building and Construction Industry Payments Act 2002, (Commonwealth of Australia).
14 Construction Contracts (Security of Payment) Act 2004, (Commonwealth of Australia) s.6.
15 Building and Construction Industry Security of Payment Act 2004, (Singapore) s.3, ss.1.
16 Construction Adjudication and Payment Act 2012, (Malaysia) s.4.

List of Cases:

ABB Power Construction Ltd v. Norwest Holst Engineering Ltd [2000] EWHC Technology 68 TCC.

Cleveland Bridge (UK) Ltd v Whessoe-Volker Stevin Joint Venture [2010] EWHC 1076 TCC.

North Midland Construction Plc v A E & E Lentjes UK Ltd [2009] EWHC 1371 TCC.

Palmers Limited v ABB Power Construction Limited [1999] BLR 426 TCC.

Parsons Plastics (Research and Development) Ltd v Purac Ltd [2002] EWCA Civ 459.

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Legislation:

Building and Construction Industry Payments Act 2002, (Commonwealth of Australia). [Accessed 17th January 2015].

Building and Construction Industry Security of Payment Act 1999, (Commonwealth of Australia) s.5. [Accessed 17th January 2015].

Building and Construction Industry Security of Payment Act 2004, (Singapore) s.3, ss.1. [Accessed 17th January 2015].

Construction Adjudication and Payment Act 2012, (Malaysia) s.4. [Accessed 17th January 2015].

Construction Contracts Act 2002 Wellington, N.Z.

Construction Contracts Act 2004, (Commonwealth of Australia). [Internet]. [Accessed 17th January 2015].

Construction Contracts (Security of Payment) Act 2004, (Commonwealth of Australia) s.6. [Internet]. [Accessed 17th January 2015].

Housing Grants Construction and Regeneration Act 1996 (c53) London, HMSO.

Local Democracy, Economic Development and Construction Act 2009 (c20) London HMSO.

Statutory Instruments:

Scheme for Construction Contracts (England and Wales) Regulations 1998 London, HMSO.

 

About the authors:

Peter Phillips works as contracts, claims and commercial manager on industrial construction projects worldwide. He is currently employed on a project for the construction of a solar-grade polysilicon production facility in Qatar. He enjoys travelling and hiking and is looking to relocate to live and work in South East Asia in the near future.

Martin Green trains construction professionals and legal practitioners in the specialised field of construction law on the MSc Construction Law & Dispute Resolution at Leeds Beckett University. The course is accredited by the Chartered Institute of Arbitrators and can lead to a second career in Arbitration, Adjudication, Mediation or Claims consultancy. Graduates of the course are all better equipped to advise on preparation of contract documents, to avoid the pitfalls of construction contracts, to negotiate through differences, to prepare and present claims, and to participate in the dispute resolution process.

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